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Orrstown Financial Services, Inc. Reports Second Quarter 2024 Results and Increases Quarterly Dividend by $0.03 per Share

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Orrstown Financial Services reported Q2 2024 results with a net income of $7.7 million and diluted EPS of $0.73, down from $8.5 million and $0.81 in Q1 2024. Excluding $1 million in merger-related expenses, net income and EPS were $8.7 million and $0.83, respectively. The net interest margin fell to 3.54% from 3.77% in Q1 2024. Nonaccrual loans dropped to $8.4 million from $12.9 million in Q1 2024. Non-interest income increased to $7.2 million from $6.6 million in Q1 2024, while non-interest expenses grew slightly to $22.6 million. The company declared a dividend increase of $0.03 per share, payable on August 15, 2024.

Orrstown Financial Services ha riportato i risultati del Q2 2024, con un utile netto di 7,7 milioni di dollari e un EPS diluito di 0,73 dollari, in calo rispetto agli 8,5 milioni di dollari e 0,81 dollari del Q1 2024. Escludendo 1 milione di dollari di spese legate alla fusione, l'utile netto e l'EPS sono stati rispettivamente di 8,7 milioni di dollari e 0,83 dollari. Il margine di interesse netto è sceso al 3,54% dal 3,77% del Q1 2024. I prestiti non in stato di pagamento sono diminuiti a 8,4 milioni di dollari rispetto ai 12,9 milioni del Q1 2024. Il reddito non da interessi è aumentato a 7,2 milioni di dollari rispetto ai 6,6 milioni del Q1 2024, mentre le spese non da interessi sono leggermente aumentate a 22,6 milioni di dollari. La società ha dichiarato un aumento del dividendo di 0,03 dollari per azione, pagabile il 15 agosto 2024.

Orrstown Financial Services informó los resultados del Q2 2024 con un ingreso neto de 7.7 millones de dólares y un EPS diluido de 0.73, disminuyendo desde los 8.5 millones y 0.81 en el Q1 2024. Excluyendo 1 millón de dólares en gastos relacionados con la fusión, el ingreso neto y el EPS fueron de 8.7 millones y 0.83, respectivamente. El margen de interés neto cayó al 3.54% desde el 3.77% en el Q1 2024. Los préstamos en estado de incobrabilidad se redujeron a 8.4 millones desde los 12.9 millones en el Q1 2024. El ingreso no relacionado con intereses aumentó a 7.2 millones desde los 6.6 millones en el Q1 2024, mientras que los gastos no relacionados con intereses crecieron ligeramente a 22.6 millones. La empresa declaró un aumento del dividendo de 0.03 por acción, pagadero el 15 de agosto de 2024.

Orrstown Financial Services는 2024년 2분기 결과를 발표하며 순이익이 770만 달러, 희석 주당순이익이 0.73달러로, 2024년 1분기의 850만 달러와 0.81달러에서 감소했다고 밝혔습니다. 합병 관련 비용 100만 달러를 제외할 경우, 순이익 및 EPS는 각각 870만 달러와 0.83달러로 나타났습니다. 순이자 마진은 2024년 1분기의 3.77%에서 3.54%로 떨어졌습니다. 연체 대출은 2024년 1분기의 1290만 달러에서 840만 달러로 줄어들었습니다. 비이자 수익은 2024년 1분기의 660만 달러에서 720만 달러로 증가했으며, 비이자 비용은 약간 증가해 2260만 달러에 이르렀습니다. 회사는 배당금 인상을 주당 0.03달러로 선언하며, 2024년 8월 15일에 지급될 예정입니다.

Orrstown Financial Services a annoncé les résultats du T2 2024, avec un bénéfice net de 7,7 millions de dollars et un BAE dilué de 0,73 dollar, en baisse par rapport à 8,5 millions de dollars et 0,81 dollar au T1 2024. En excluant 1 million de dollars de frais liés à la fusion, le bénéfice net et le BAE étaient respectivement de 8,7 millions de dollars et 0,83 dollar. La marge d'intérêt nette a chuté à 3,54% contre 3,77% au T1 2024. Les prêts non recouvrables ont diminué à 8,4 millions de dollars contre 12,9 millions de dollars au T1 2024. Les revenus non liés aux intérêts ont augmenté à 7,2 millions de dollars contre 6,6 millions de dollars au T1 2024, tandis que les dépenses non liées aux intérêts ont légèrement augmenté à 22,6 millions de dollars. La société a déclaré une augmentation de dividende de 0,03 dollar par action, payable le 15 août 2024.

Orrstown Financial Services berichtete über die Ergebnisse des 2. Quartals 2024 mit einem Nettoergebnis von 7,7 Millionen US-Dollar und einem verwässerten EPS von 0,73, was einem Rückgang von 8,5 Millionen und 0,81 im 1. Quartal 2024 entspricht. Ohne 1 Million US-Dollar an fusionsbedingten Ausgaben betrugen das Nettoergebnis und das EPS 8,7 Millionen US-Dollar und 0,83. Die Nettozinsspanne fiel auf 3,54% gegenüber 3,77% im 1. Quartal 2024. Die notleidenden Kredite sanken von 12,9 Millionen US-Dollar im 1. Quartal 2024 auf 8,4 Millionen US-Dollar. Die nebeneinkommensquellen stiegen von 6,6 Millionen US-Dollar im 1. Quartal 2024 auf 7,2 Millionen US-Dollar, während die nicht zinstragenden Aufwendungen leicht auf 22,6 Millionen US-Dollar anstiegen. Das Unternehmen erklärte eine Dividendensteigerung von 0,03 US-Dollar pro Aktie, zahlbar am 15. August 2024.

Positive
  • Dividend increased by 15% to $0.23 per share.
  • Non-interest income rose to $7.2 million from $6.6 million.
  • Nonaccrual loans decreased to $8.4 million, improving asset quality.
  • Tangible book value per common share increased to $24.08.
Negative
  • Net income decreased to $7.7 million from $8.5 million in Q1 2024.
  • Diluted EPS fell to $0.73 from $0.81 in Q1 2024.
  • Net interest margin declined to 3.54% from 3.77%.

Insights

The recent quarterly results of Orrstown Financial Services, Inc. offer a mixed bag of insights for investors. While the company reported a sequential decline in net income and earnings per share, a deeper dive reveals a few positive nuances. Excluding merger-related costs, the adjusted figures indicate a relatively stable performance. The completion of the merger with Codorus Valley Bancorp is a noteworthy event, expected to bring long-term synergies and scale advantages.

Moreover, key metrics like the net interest margin and return on average equity have seen some pressures, but these can be attributed to temporary factors such as interest income from the payoff of a nonaccrual loan in Q1. Importantly, the decrease in nonaccrual loans and the rise in tangible book value per share bode well for the company's financial health and should be viewed positively by investors focused on asset quality and intrinsic value.

Another highlight is the 15% increase in the quarterly dividend, reflecting management's confidence in future cash flows and commitment to returning value to shareholders. However, the slight downturn in return on average equity and net interest margin due to higher funding costs warrants cautious optimism as these are areas to be closely monitored in future quarters.

The market reaction to the reported results of Orrstown Financial Services, Inc. will likely be mixed. Investors may find the lowered net income and earnings per share concerning at first glance. However, the qualitative aspects should not be overlooked. The merger with Codorus Valley Bancorp is a significant development that alters the company’s future growth trajectory. While integration costs are expected to persist in the short term, the long-term potential for increased profitability and market share is promising.

Additionally, an increase in non-interest income, particularly from wealth management and swap fees, highlights diversified revenue streams, which are critical in the volatile interest rate environment. The uptick in deposits and the stable loan-to-deposit ratio also suggest a strong liquidity position, essential for supporting growth and meeting client needs. Investors should focus on these foundational strengths and growth potentials rather than the quarterly fluctuations.

The merger of Orrstown Financial Services with Codorus Valley Bancorp stands out as a pivotal move in the banking sector. Historically, mergers of equals often lead to significant operational efficiencies and cost savings, although they come with initial integration challenges and expenses. The reported expenses linked to the merger are a short-term pain for a potential long-term gain.

From an operational standpoint, the decline in nonaccrual loans and the overall improvement in asset quality metrics should be reassuring to investors. The company's strategy to grow its commercial and residential loan portfolios while maintaining credit quality reflects prudent risk management. Furthermore, the commitment to increased dividends is a direct benefit to shareholders, signaling robust capital management.

However, it's essential for investors to remain cautious of the integration process's complexities and the economic conditions that could impact the banking sector broadly. The balance between growth, cost management and maintaining robust credit quality will be key areas to watch in the coming quarters.

  • Orrstown Financial Services, Inc. ("Orrstown" or the “Company”) closed the merger of equals transaction with Codorus Valley Bancorp, Inc. ("Codorus") on July 1, 2024; as a result, the second quarter results reported in this release reflect Orrstown's standalone operating results and do not reflect the combined operating results of the two companies;
  • Net income of $7.7 million and diluted earnings per share of $0.73 for the three months ended June 30, 2024 compared to net income of $8.5 million and diluted earnings per share of $0.81 for the three months ended March 31, 2024;
  • Excluding the impact of $1.0 million in expenses related to the merger, net of taxes, net income and diluted earnings per share, respectively, were $8.7 million(1) and $0.83(1) for the second quarter of 2024 compared to net income and diluted earnings per share of $9.2 million(1) and $0.88(1), respectively, as adjusted for the impact of $0.7 million in merger-related expenses, net of taxes, recorded for the first quarter of 2024;
  • Net interest margin, on a tax equivalent basis, was 3.54% in the second quarter of 2024 compared to 3.77% in the first quarter of 2024; during the three months ended March 31, 2024, Orrstown Bank (the "Bank") recognized interest income previously applied to principal of $1.6 million from the payoff of a nonaccrual loan, which positively impacted net interest margin for the first quarter of 2024 by 21 basis points; excluding the impact of the payoff, net interest margin for the first quarter of 2024 would have been 3.56%;
  • Return on average equity for the three months ended June 30, 2024 was 11.41% compared to 12.79% for the three months ended March 31, 2024; excluding the aforementioned merger-related expenses, return on average equity was 12.88%(1) for the three months ended June 30, 2024 compared to 13.79%(1) for the three months ended March 31, 2024;
  • At June 30, 2024, nonaccrual loans totaled $8.4 million, a decrease of $4.5 million, from $12.9 million at March 31, 2024 and a decrease of $17.1 million from December 31, 2023; nonaccrual loans to total loans declined to 0.36% at June 30, 2024 compared to 0.56% at March 31, 2024 and 1.11% at December 31, 2023;
  • Non-interest income increased by $0.6 million to $7.2 million for the three months ended June 30, 2024 from $6.6 million for the three months ended March 31, 2024;
  • Tangible book value per common share(1) rose to $24.08 per share at June 30, 2024 compared to $23.47 per share at March 31, 2024;
  • The Board of Directors declared a cash dividend of $0.23 per common share, payable August 15, 2024, to shareholders of record as of August 8, 2024; this represents an increase in the Company's quarterly cash dividend of $0.03 per share, or 15%.

HARRISBURG, Pa., July 23, 2024 (GLOBE NEWSWIRE) -- Orrstown Financial Services, Inc. (NASDAQ: ORRF), the parent company of Orrstown Bank (the “Bank”), announced earnings for the three months ended June 30, 2024. Net income totaled $7.7 million for the three months ended June 30, 2024, compared to $8.5 million for the three months ended March 31, 2024 and $9.8 million for the three months ended June 30, 2023. Diluted earnings per share totaled $0.73 for the three months ended June 30, 2024, compared to $0.81 for the three months ended March 31, 2024 and $0.94 for the three months ended June 30, 2023. Merger-related expenses totaled $1.1 million and $0.7 million for the three months ended June 30, 2024 and March 31, 2024, respectively. For the second quarter of 2024, excluding the impact from the merger-related expenses, net of taxes, net income and diluted earnings per share were $8.7 million(1) and $0.83(1), respectively. For the first quarter of 2024, excluding the impact from the merger-related expenses, net of taxes, net income and diluted earnings per share were $9.2 million(1) and $0.88(1), respectively.

(1) Non-GAAP measure. See Appendix A for additional information.

"The closing of the merger of equals with Codorus Valley Bancorp represents a significant milestone in the history of the Company. The merger will significantly increase the combined company's size and scale, which we believe will drive profitability and shareholder value. We are already making progress on the cost savings and integration consistent with the previously announced timeline to achieve these benefits," commented Thomas R. Quinn, Jr., President and Chief Executive Officer.

"We are proud of our second quarter results, highlighted by robust earnings, stabilizing net interest margin, solid loan growth, strong fee income and an increase in our quarterly cash dividend. We are excited to move forward as one unified organization, leveraging our combined strengths to deliver even greater value to our shareholders, clients, communities and employees," Mr. Quinn added.

DISCUSSION OF RESULTS

Balance Sheet

Loans

Loans held for investment increased by $44.5 million, or 8% annualized, from March 31, 2024 to June 30, 2024. Commercial loans increased by $41.9 million, or 9% annualized, from $1.8 billion at March 31, 2024 to $1.9 billion at June 30, 2024. The residential mortgage portfolio increased by $2.8 million in the three months ended June 30, 2024.

Investment Securities

Investment securities, all of which are classified as available-for-sale, increased by $14.2 million to $529.1 million at June 30, 2024 from $514.9 million at March 31, 2024. During the second quarter of 2024, purchases of $28.5 million were partially offset by paydowns of $11.3 million and a call of $2.4 million. The overall duration of the Company's investment securities portfolio was 4.2 years at June 30, 2024. See Appendix B for a summary of the Bank's investment securities at June 30, 2024, highlighting their concentrations, credit ratings and credit enhancement levels.

Deposits

During the second quarter of 2024, deposits increased by $6.9 million totaling approximately $2.7 billion at both June 30, 2024 and March 31, 2024. In the second quarter of 2024, time deposits increased by $32.5 million, money market deposits increased by $18.7 million and non-interest bearing deposits increased by $6.7 million. These increases were partially offset by decreases in interest-bearing demand deposits of $48.2 million and savings deposits of $2.8 million. The increase in time deposits was attributable to promotional offerings of up to 18-month terms. The decrease in interest-bearing demand deposits primarily reflects activity from one client who deposited funds in the prior quarter on a short-term basis. The declines in savings deposits were primarily due to clients shifting to higher-yielding products within the Bank. At June 30, 2024, deposits that are uninsured and not collateralized totaled $422.3 million, or 16%, of total deposits compared to $413.5 million, or 15%, of total deposits at March 31, 2024. The Bank's loan-to-deposit ratio increased slightly to 87% at June 30, 2024 from 85% at March 31, 2024 due to the increase in loans during the second quarter of 2024.

Borrowings

The Bank actively manages its liquidity position through its various sources of funding to meet the needs of its clients. FHLB advances and other borrowings were $115.0 million at both June 30, 2024 and March 31, 2024. The Bank seeks to maintain sufficient liquidity to ensure client needs can be addressed on a timely basis. The Bank had available alternative funding sources, such as FHLB advances and other wholesale options, of approximately $1.0 billion at June 30, 2024.

Income Statement

Net Interest Income and Margin

Net interest income was $26.1 million for the three months ended June 30, 2024 compared to $26.9 million for the three months ended March 31, 2024. The net interest margin, on a tax equivalent basis, decreased to 3.54% in the second quarter of 2024 from 3.77% in the first quarter of 2024. During the first quarter of 2024, the Bank recognized interest income previously applied to principal of $1.6 million from the payoff of a commercial real estate loan on nonaccrual status, which contributed 21 basis points to net interest margin. Excluding the impact of the payoff, net interest margin was relatively stable quarter-to-quarter. The net interest margin was negatively impacted by the increase in funding costs of 11 basis points due primarily to higher average interest-bearing deposit balances. Offsetting these factors, interest income benefited from the deployment of cash into higher yielding loans and investments.

Interest income on loans, on a tax equivalent basis, decreased by $0.7 million to $35.7 million for the three months ended June 30, 2024 compared to $36.4 million for the three months ended March 31, 2024, which was primarily due to the aforementioned interest recovery during the first quarter of 2024.

Interest income on investment securities, on a tax equivalent basis, was $6.1 million for the second quarter of 2024 compared to $5.7 million in the first quarter of 2024. The increase in interest income on investment securities was primarily caused by the increased average balance of investment securities for the quarter.

Interest expense, on a tax equivalent basis, increased by $1.4 million to $17.2 million for the three months ended June 30, 2024 compared to $15.8 million for the three months ended March 31, 2024 due primarily to higher average deposit balances and an increase in rates on deposits. Average interest-bearing deposits increased by $127.9 million during the three months ended June 30, 2024 compared to the three months ended March 31, 2024.

Provision for Credit Losses

The Company recorded a provision for credit losses of $0.8 million for the three months ended June 30, 2024 compared to $0.3 million for the three months ended March 31, 2024. The allowance for credit losses ("ACL") on loans increased to $29.9 million at June 30, 2024 from $29.2 million at March 31, 2024. The increase in the ACL was driven primarily by loan growth. The ACL to total loans was 1.27% at both June 30, 2024 and March 31, 2024. Net charge-offs were $0.1 million for the three months ended June 30, 2024 compared to net recoveries which totaled less than $0.1 million for the three months ended March 31, 2024.

Special mention loans decreased by $6.1 million from $16.0 million at March 31, 2024 to $9.9 million at June 30, 2024 due to repayments of $2.1 million and upgrades of $1.7 million. The remaining decrease to special mention loans was due to downgrades to classified loans. Classified loans decreased by $0.3 million to $48.7 million at June 30, 2024 from $49.0 million at March 31, 2024. The decrease in classified loans was primarily due to repayments of $8.0 million partially offset by downgrades. Non-accrual loans decreased by $4.5 million to $8.4 million at June 30, 2024 from $12.9 million at March 31, 2024 primarily due to repayments of $6.5 million in acquisition and development and commercial real estate loans. The repayments on non-accrual loans were partially offset by additions of $2.1 million, including one commercial real estate loan totaling $1.2 million. Management believes the ACL to be adequate based on current asset quality metrics and economic conditions.

Management regularly analyzes the commercial real estate portfolio, which includes the review of occupancy, cash flows, expenses and expiring leases, as well as the location of the real estate. At June 30, 2024, the Company had $220.4 million in loans related to office space compared to $225.9 million at March 31, 2024. The weighted average loan-to-value ratio was 56% and the weighted average debt coverage ratio was 1.85x at June 30, 2024. Management believes that the office space portfolio is well-diversified and includes only limited exposure to properties located in major metro markets (approximately 2% of the total commercial real estate loan balance as of June 30, 2024).

Noninterest Income

Noninterest income increased by $0.6 million to $7.2 million in the three months ended June 30, 2024 compared to $6.6 million in the three months ended March 31, 2024.

Wealth management income increased by $0.2 million in the three months ended June 30, 2024 compared to the three months ended March 31, 2024 due to both new client generation and strong stock market performance.

During the second quarter of 2024, the Company recorded swap fee income of $0.4 million compared to $0.2 million in the three months ended March 31, 2024. Swap fee income fluctuates based on market conditions and client demand.

For the three months ended June 30, 2024, mortgage banking income decreased by $0.1 million compared to the first quarter of 2024. During the second quarter of 2024, residential mortgage sales totaled $8.4 million compared to $14.7 million during the first quarter of 2024, inclusive of a portfolio of loans sold to another institution during the first quarter of 2024. Mortgage production levels remain low in the current environment.

Noninterest Expenses

Noninterest expenses increased by $0.1 million to $22.6 million in the three months ended June 30, 2024 from $22.5 million in the three months ended March 31, 2024.

For the three months ended June 30, 2024, merger-related expenses totaled $1.1 million, an increase of $0.4 million, compared to $0.7 million for the three months ended March 31, 2024. The increase is due primarily to higher legal fees incurred during the second quarter of 2024. The Company will incur additional merger-related expenses from the operational and technology processes to combine systems and services of both companies, which is expected to be completed in November 2024.

Advertising and bank promotions expense increased by $0.4 million to $0.8 million in the three months ended June 30, 2024 from $0.4 million in the three months ended March 31, 2024 due to $0.5 million in contributions to tax credit programs during the second quarter of 2024. Taxes other than income decreased by $0.4 million to less than $0.1 million in the three months ended June 30, 2024 compared to $0.5 million in the three months ended March 31, 2024. This decrease reflects the tax credits recognized on the contributions during the second quarter of 2024.

Salaries and benefits expense decreased by $0.6 million to $13.2 million for the three months ended June 30, 2024 compared to $13.8 million for the three months ended March 31, 2024. Employee benefit costs were lower during the second quarter of 2024 compared to the first quarter of 2024 as social security and unemployment taxes are typically higher at the beginning of the year. In addition, incentive compensation was higher during the first quarter of 2024 associated with the prior year's performance.

Income Taxes

The Company's effective tax rate for the second quarter of 2024 was 21.2% compared to 20.6% for the first quarter of 2024. The Company's effective tax rate for the three months ended June 30, 2024 is greater than the 21% federal statutory rate primarily due to the disallowed portion of interest expense against earnings in association with the Bank's tax-exempt investments under the Tax Equity and Fiscal Responsibility Act of 1982 ("TEFRA") and the impact of nondeductible merger-related costs, partially offset by tax-exempt income, including interest earned on tax-exempt loans and securities and income from life insurance policies and tax credits. The nondeductible merger-related costs increased the effective tax rate by 0.9% for the second quarter of 2024 compared to an increase in the effective tax rate of 1.2% for the first quarter of 2024. The Company regularly analyzes its projected taxable income and makes adjustments to the provision for income taxes accordingly.

Capital

Shareholders’ equity totaled $278.4 million at June 30, 2024, an increase of $6.7 million from $271.7 million at March 31, 2024. The increase was primarily attributable to net income of $7.7 million, partially offset by dividends paid of $2.1 million. Other comprehensive income totaled $0.3 million for the second quarter of 2024, which primarily consisted of net unrealized gains on cash flow hedges. The remaining activity is related to share-based compensation.

Tangible book value per share(1) increased to $24.08 per share at June 30, 2024 from $23.47 per share at March 31, 2024 due to the increase in shareholders' equity.

The Company's tangible common equity ratio increased to 8.1% at June 30, 2024 from 7.9% at March 31, 2024 due to the increase in shareholders' equity during the second quarter of 2024. The Company's total risk-based capital ratio was 13.3% at June 30, 2024 compared to 13.4% at March 31, 2024. The Company's Tier 1 leverage ratio was 8.9% at June 30, 2024 compared to 9.0% at March 31, 2024. At June 30, 2024, all four capital ratios applicable to the Company were above regulatory minimum levels to be deemed “well capitalized” under current bank regulatory guidelines. The Company continues to believe that capital is adequate to support the risks inherent in the balance sheet, as well as growth requirements.

Selected Financial Information of Codorus Valley Bancorp, Inc. (unaudited)

  • As of June 30, 2024, Codorus had total assets of $2.2 billion, total loans of $1.7 billion and total deposits of $1.9 billion;
  • Net income for the three months ended June 30, 2024, excluding $9.6 million of merger-related expenses, was $5.5 million; net income for the six months ended June 30, 2024, excluding $9.8 million of merger-related expenses, was $9.8 million;
  • Net interest margin for the three and six months ended June 30, 2024 was 3.28% and 3.34%, respectively;
  • Non-performing loans totaled $8.9 million and classified loans were $45.5 million at June 30, 2024.

(1) Non-GAAP measure. See Appendix A for additional information.

Investor Relations Contact:
Neelesh Kalani
Executive Vice President, Chief Financial Officer
Phone (717) 510-7097


ORRSTOWN FINANCIAL SERVICES, INC.       
FINANCIAL HIGHLIGHTS (Unaudited)       
        
        
 Three Months Ended Six Months Ended
 June 30, June 30, June 30, June 30,
(Dollars in thousands) 2024   2023   2024   2023 
        
Profitability for the period:       
Net interest income$26,103  $26,375  $52,984  $52,669 
Provision for credit losses 812   399   1,110   1,128 
Noninterest income 7,172   7,158   13,802   13,236 
Noninterest expenses 22,639   20,749   45,108   41,004 
Income before income tax expense 9,824   12,385   20,568   23,773 
Income tax expense 2,086   2,547   4,299   4,779 
Net income available to common shareholders$7,738  $9,838  $16,269  $18,994 
        
Financial ratios:       
Return on average assets(1) 0.97%  1.32%  1.04%  1.29%
Return on average assets, adjusted(1) (2) (3) 1.09%  1.32%  1.14%  1.29%
Return on average equity(1) 11.41%  16.27%  12.09%  16.08%
Return on average equity, adjusted(1) (2) (3) 12.88%  16.27%  13.33%  16.08%
Net interest margin(1) 3.54%  3.83%  3.65%  3.88%
Efficiency ratio 68.0%  61.9%  67.5%  62.2%
Efficiency ratio, adjusted(2) (3) 64.6%  61.9%  64.8%  62.2%
Income per common share:       
Basic$0.74  $0.95  $1.57  $1.83 
Basic, adjusted(2) (3)$0.84  $0.95  $1.73  $1.83 
Diluted$0.73  $0.94  $1.55  $1.82 
Diluted, adjusted(2) (3)$0.83  $0.94  $1.71  $1.82 
        
Average equity to average assets 8.50%  8.11%  8.58%  8.04%
        
(1)Annualized for the three and six months ended June 30, 2024 and 2023
(2)Ratio for the three and six months ended June 30, 2024 has been adjusted for merger-related expenses.
(3)Non-GAAP based financial measure. Please refer to Appendix A - Supplemental Reporting of Non-GAAP Measures and GAAP to Non-GAAP Reconciliations for a discussion of our use of non-GAAP based financial measures, including tables reconciling GAAP and non-GAAP financial measures appearing herein.


ORRSTOWN FINANCIAL SERVICES, INC.   
FINANCIAL HIGHLIGHTS (Unaudited)   
(continued)   
 June 30, December 31,
(Dollars in thousands, except per share amounts) 2024   2023 
At period-end:   
Total assets$3,198,782  $3,064,240 
Loans, net of allowance for credit losses 2,317,739   2,269,611 
Loans held-for-sale, at fair value 1,562   5,816 
Securities available for sale, at fair value 529,082   513,519 
Total deposits 2,702,884   2,558,814 
Borrowings 129,625   147,285 
Subordinated notes 32,128   32,093 
Shareholders' equity 278,376   265,056 
    
Credit quality and capital ratios(1):   
Allowance for credit losses to total loans 1.27%  1.25%
Total nonaccrual loans to total loans 0.36%  1.11%
Nonperforming assets to total assets 0.26%  0.83%
Allowance for credit losses to nonaccrual loans 357%  112%
Total risk-based capital:   
Orrstown Financial Services, Inc. 13.3%  13.0%
Orrstown Bank 13.1%  12.8%
Tier 1 risk-based capital:   
Orrstown Financial Services, Inc. 11.1%  10.8%
Orrstown Bank 12.0%  11.6%
Tier 1 common equity risk-based capital:   
Orrstown Financial Services, Inc. 11.1%  10.8%
Orrstown Bank 12.0%  11.6%
Tier 1 leverage capital:   
Orrstown Financial Services, Inc. 8.9%  8.9%
Orrstown Bank 9.5%  9.5%
    
Book value per common share$25.97  $24.98 
    
(1)Capital ratios are estimated, subject to regulatory filings. The Company elected the three-year phase in option for the day-one impact of ASU 2016-13 for current expected credit losses ("CECL") to regulatory capital. Beginning in 2023, the Company adjusted retained earnings, allowance for credit losses includable in tier 2 capital and the deferred tax assets from temporary differences in risk weighted assets by the permitted percentage of the day-one impact from adopting the CECL standard.


ORRSTOWN FINANCIAL SERVICES, INC.   
CONSOLIDATED BALANCE SHEETS (Unaudited)   
    
(Dollars in thousands, except per share amounts)June 30, 2024 December 31, 2023
Assets   
Cash and due from banks$35,951  $32,586 
Interest-bearing deposits with banks 96,558   32,575 
Cash and cash equivalents 132,509   65,161 
Restricted investments in bank stocks 11,147   11,992 
Securities available for sale (amortized cost of $566,421 and $549,089 at June 30, 2024 and December 31, 2023, respectively) 529,082   513,519 
Loans held for sale, at fair value 1,562   5,816 
Loans 2,347,603   2,298,313 
Less: Allowance for credit losses (29,864)  (28,702)
Net loans 2,317,739   2,269,611 
Premises and equipment, net 28,484   29,393 
Cash surrender value of life insurance 74,119   73,204 
Goodwill 18,724   18,724 
Other intangible assets, net 1,974   2,414 
Accrued interest receivable 14,120   13,630 
Deferred tax assets, net 21,674   22,017 
Other assets 47,648   38,759 
Total assets$3,198,782  $3,064,240 
    
Liabilities   
Deposits:   
Noninterest-bearing$425,255  $430,959 
Interest-bearing 2,277,629   2,127,855 
Total deposits 2,702,884   2,558,814 
Securities sold under agreements to repurchase and federal funds purchased 14,625   9,785 
FHLB advances and other borrowings 115,000   137,500 
Subordinated notes 32,128   32,093 
Accrued interest and other liabilities 55,769   60,992 
Total liabilities 2,920,406   2,799,184 
    
Shareholders’ Equity   
Preferred stock, $1.25 par value per share; 500,000 shares authorized; no shares issued or outstanding     
Common stock, no par value—$0.05205 stated value per share; 50,000,000 shares authorized; 11,201,269 shares issued and 10,720,225 outstanding at June 30, 2024; 11,204,599 shares issued and 10,612,390 outstanding at December 31, 2023 583   583 
Additional paid—in capital 187,694   189,027 
Retained earnings 129,670   117,667 
Accumulated other comprehensive losses (28,404)  (28,476)
Treasury stock— 481,044 and 592,209 shares, at cost at June 30, 2024 and December 31, 2023, respectively (11,167)  (13,745)
Total shareholders’ equity 278,376   265,056 
Total liabilities and shareholders’ equity$3,198,782  $3,064,240 


ORRSTOWN FINANCIAL SERVICES, INC.
CONDENSED CONSOLIDATED STATEMENTS OF INCOME (Unaudited)
         
  Three Months Ended Six Months Ended
  June 30, June 30, June 30, June 30,
(In thousands)  2024   2023   2024   2023 
Interest income        
Loans $35,537  $31,203  $71,770  $59,947 
Investment securities - taxable  4,999   4,415   9,583   8,785 
Investment securities - tax-exempt  881   865   1,758   1,730 
Short-term investments  1,864   418   2,820   716 
Total interest income  43,281   36,901   85,931   71,178 
Interest expense        
Deposits  15,265   8,608   28,781   14,810 
Securities sold under agreements to repurchase and federal funds purchased  27   28   52   53 
FHLB advances and other borrowings  1,152   1,386   2,626   2,638 
Subordinated notes  734   504   1,488   1,008 
Total interest expense  17,178   10,526   32,947   18,509 
Net interest income  26,103   26,375   52,984   52,669 
Provision for credit losses  812   399   1,110   1,128 
Net interest income after provision for credit losses  25,291   25,976   51,874   51,541 
Noninterest income        
Service charges  1,283   1,251   2,483   2,408 
Interchange income  961   993   1,872   1,958 
Swap fee income  375   196   574   196 
Wealth management income  3,312   2,822   6,414   5,569 
Mortgage banking activities  369   112   827   590 
Investment securities losses  (12)  (2)  (17)  (10)
Other income  884   1,786   1,649   2,525 
Total noninterest income  7,172   7,158   13,802   13,236 
Noninterest expenses        
Salaries and employee benefits  13,195   13,054   26,947   25,250 
Occupancy, furniture and equipment  2,705   2,266   5,344   4,599 
Data processing  1,237   1,201   2,502   2,418 
Advertising and bank promotions  774   919   1,172   1,324 
FDIC insurance  419   519   860   1,023 
Professional services  801   504   1,432   1,238 
Taxes other than income  49   3   543   460 
Intangible asset amortization  215   239   440   489 
Merger-related expenses  1,135      1,807    
Other operating expenses  2,109   2,044   4,061   4,203 
Total noninterest expenses  22,639   20,749   45,108   41,004 
Income before income tax expense  9,824   12,385   20,568   23,773 
Income tax expense  2,086   2,547   4,299   4,779 
Net income $7,738  $9,838  $16,269  $18,994 
continued
         
  Three Months Ended Six Months Ended
  June 30, June 30, June 30, June 30,
   2024   2023   2024   2023 
Share information:        
Basic earnings per share $0.74  $0.95  $1.57  $1.83 
Diluted earnings per share $0.73  $0.94  $1.55  $1.82 
Dividends paid per share $0.20  $0.20  $0.40  $0.40 
Weighted average shares - basic  10,393   10,336   10,371   10,360 
Weighted average shares - diluted  10,553   10,421   10,517   10,458 


ORRSTOWN FINANCIAL SERVICES, INC.    
ANALYSIS OF NET INTEREST INCOME    
Average Balances and Interest Rates, Taxable-Equivalent Basis (Unaudited)  
 Three Months Ended
 6/30/2024 3/31/2024 12/31/2023 9/30/2023 6/30/2023
   Taxable- Taxable-   Taxable- Taxable-   Taxable- Taxable-   Taxable- Taxable-   Taxable- Taxable-
 Average Equivalent Equivalent Average Equivalent Equivalent Average Equivalent Equivalent Average Equivalent Equivalent Average Equivalent Equivalent
(Dollars in thousands)Balance Interest Rate Balance Interest Rate Balance Interest Rate Balance Interest Rate Balance Interest Rate
Assets                             
Federal funds sold & interest-bearing bank balances$142,868 $1,864  5.25% $74,523 $956  5.16% $37,873 $460  4.82% $57,778 $633  4.35% $37,895 $418  4.42%
Investment securities(1)(2) 538,451  6,114  4.54   519,851  5,694  4.39   508,891  5,890  4.63   521,234  5,548  4.26   526,225  5,510  4.19 
Loans(1)(3)(4)(5) 2,324,942  35,690  6.17   2,308,103  36,382  6.34   2,286,678  34,055  5.91   2,256,727  32,878  5.78   2,233,312  31,329  5.63 
Total interest-earning assets 3,006,261  43,668  5.84   2,902,477  43,032  5.96   2,833,442  40,405  5.67   2,835,739  39,059  5.47   2,797,432  37,257  5.34 
Other assets 204,863      196,295      204,382      200,447      191,983    
Total assets$3,211,124     $3,098,772     $3,037,824     $3,036,186     $2,989,415    
Liabilities and Shareholders' Equity                        
Interest-bearing demand deposits$1,649,753  10,118  2.47  $1,570,622  9,192  2.35  $1,543,575  8,333  2.14  $1,541,728  7,476  1.92  $1,511,468  6,273  1.66 
Savings deposits 165,467  140  0.34   170,005  144  0.34   178,351  153  0.34   190,817  164  0.34   204,584  135  0.26 
Time deposits 481,721  5,007  4.18   428,443  4,180  3.92   392,085  3,632  3.67   357,194  2,942  3.27   326,034  2,200  2.71 
Total interest-bearing deposits 2,296,941  15,265  2.67   2,169,070  13,516  2.51   2,114,011  12,118  2.27   2,089,739  10,582  2.01   2,042,086  8,608  1.69 
Securities sold under agreements to repurchase and federal funds purchased 13,412  27  0.81   12,010  25  0.85   13,874  30  0.85   15,006  31  0.83   13,685  28  0.82 
FHLB advances and other borrowings 115,000  1,152  4.03   137,505  1,474  4.31   127,843  1,358  4.21   128,131  1,354  4.19   132,094  1,386  4.21 
Subordinated notes 32,118  734  9.19   32,100  754  9.45   32,083  504  6.29   32,066  505  6.29   32,049  504  6.29 
Total interest-bearing liabilities 2,457,471  17,178  2.81   2,350,685  15,769  2.70   2,287,811  14,010  2.43   2,264,942  12,472  2.19   2,219,914  10,526  1.90 
Noninterest-bearing demand deposits 423,037      417,469      441,695      468,628      476,123    
Other liabilities 57,828      62,329      59,876      54,353      50,851    
Total liabilities 2,938,336      2,830,483      2,789,382      2,787,923      2,746,888    
Shareholders' equity 272,788      268,289      248,442      248,263      242,527    
Total$3,211,124     $3,098,772     $3,037,824     $3,036,186     $2,989,415    
Taxable-equivalent net interest income / net interest spread   26,490  3.02%    27,263  3.26%    26,395  3.24%    26,587  3.29%    26,731  3.44%
Taxable-equivalent net interest margin    3.54%     3.77%     3.71%     3.73%     3.83%
Taxable-equivalent adjustment   (387)      (382)      (377)      (368)      (356)  
Net interest income  $26,103      $26,881      $26,018      $26,219      $26,375   
Ratio of average interest-earning assets to average interest-bearing liabilities    122%     123%     124%     125%     126%
                              
                              
NOTES:                             
(1)Yields and interest income on tax-exempt assets have been computed on a taxable-equivalent basis assuming a 21% tax rate.
(2)Average balance of investment securities is computed at fair value.
(3)Average balances include nonaccrual loans.
(4)Interest income on loans includes prepayment and late fees, where applicable.
(5)Interest income on loans includes interest recovered of $1.6 million from the payoff of a commercial real estate loan on nonaccrual status in the three months ended March 31, 2024.


ORRSTOWN FINANCIAL SERVICES, INC.      
ANALYSIS OF NET INTEREST INCOME    
Average Balances and Interest Rates, Taxable-Equivalent Basis (Unaudited)  
(continued)           
 Six Months Ended
 June 30, 2024 June 30, 2023
   Taxable- Taxable-   Taxable- Taxable-
 Average Equivalent Equivalent Average Equivalent Equivalent
(Dollars in thousands)Balance Interest Rate Balance Interest Rate
Assets           
Federal funds sold & interest-bearing bank balances$108,695 $2,820  5.22% $33,770 $716  4.27%
Investment securities(1)(2) 529,151  11,808  4.47   525,957  10,975  4.19 
Loans(1)(3)(4)(5) 2,316,522  72,072  6.25   2,206,914  60,173  5.49 
Total interest-earning assets 2,954,368  86,700  5.90   2,766,641  71,864  5.23 
Other assets 200,580      194,786    
Total assets$3,154,948     $2,961,427    
Liabilities and Shareholders' Equity           
Interest-bearing demand deposits$1,610,188  19,310  2.41  $1,507,467  11,135  1.49 
Savings deposits 167,736  284  0.34   211,955  268  0.25 
Time deposits 455,082  9,187  4.06   301,095  3,407  2.28 
Total interest-bearing deposits 2,233,006  28,781  2.59   2,020,517  14,810  1.48 
Securities sold under agreements to repurchase and federal funds purchased 12,711  52  0.83   13,776  53  0.77 
FHLB advances and other borrowings 126,253  2,626  4.18   119,335  2,638  4.46 
Subordinated notes 32,109  1,488  9.32   32,041  1,008  6.29 
Total interest-bearing liabilities 2,404,079  32,947  2.76   2,185,669  18,509  1.71 
Noninterest-bearing demand deposits 420,253      485,789    
Other liabilities 60,078      51,736    
Total liabilities 2,884,410      2,723,194    
Shareholders' equity 270,538      238,233    
Total liabilities and shareholders' equity$3,154,948     $2,961,427    
Taxable-equivalent net interest income / net interest spread   53,753  3.14%    53,355  3.52%
Taxable-equivalent net interest margin    3.65%     3.88%
Taxable-equivalent adjustment   (769)      (686)  
Net interest income  $52,984      $52,669   
Ratio of average interest-earning assets to average interest-bearing liabilities    123%     127%
            


NOTES TO ANALYSIS OF NET INTEREST INCOME:        
(1) Yields and interest income on tax-exempt assets have been computed on a taxable-equivalent basis assuming a 21% tax rate.
(2) Average balance of investment securities is computed at fair value.
(3) Average balances include nonaccrual loans.
(4) Interest income on loans includes prepayment and late fees, where applicable.
(5) Interest income on loans includes interest recovered of $1.6 million from the payoff of a commercial real estate loan on nonaccrual status for the six months ended June 30, 2024.
 


ORRSTOWN FINANCIAL SERVICES, INC.    
HISTORICAL TRENDS IN QUARTERLY FINANCIAL DATA (Unaudited)    
          
(In thousands)June 30,
2024
 March 31,
2024
 December 31,
2023
 September 30,
2023
 June 30,
2023
Profitability for the quarter:         
Net interest income$26,103  $26,881  $26,018  $26,219  $26,375 
Provision for credit losses 812   298   418   136   399 
Noninterest income 7,172   6,630   6,491   5,925   7,158 
Noninterest expenses 22,639   22,469   22,392   20,447   20,749 
Income before income taxes 9,824   10,744   9,699   11,561   12,385 
Income tax expense 2,086   2,213   2,056   2,535   2,547 
Net income$7,738  $8,531  $7,643  $9,026  $9,838 
          
Financial ratios:         
Return on average assets(1) 0.97%  1.11%  1.00%  1.18%  1.32%
Return on average assets, adjusted(1)(2)(3) 1.09%  1.19%  1.13%  1.18%  1.32%
Return on average equity(1) 11.41%  12.79%  12.21%  14.42%  16.27%
Return on average equity, adjusted(1)(2)(3) 12.88%  13.79%  13.77%  14.42%  16.27%
Net interest margin(1) 3.54%  3.77%  3.71%  3.73%  3.83%
Efficiency ratio 68.0%  67.0%  68.9%  63.6%  61.9%
Efficiency ratio, adjusted(2)(3) 64.6%  65.0%  65.6%  63.6%  61.9%
          
Per share information:         
Income per common share:         
Basic$0.74  $0.82  $0.74  $0.87  $0.95 
Basic, adjusted(2)(3) 0.84   0.89   0.84   0.87   0.95 
Diluted 0.73   0.81   0.73   0.87   0.94 
Diluted, adjusted(2)(3) 0.83   0.88   0.83   0.87   0.94 
Book value 25.97   25.38   24.98   22.90   23.15 
Tangible book value 24.08   23.47   23.03   20.94   21.19 
Cash dividends paid 0.20   0.20   0.20   0.20   0.20 
          
Average basic shares 10,393   10,349   10,321   10,319   10,336 
Average diluted shares 10,553   10,482   10,419   10,405   10,421 
(1)Annualized.
(2)Ratio has been adjusted for the merger-related expenses for the three months ended June 30, 2024, March 31, 2024 and December 31, 2023.
(3)Non-GAAP based financial measure. Please refer to Appendix A - Supplemental Reporting of Non-GAAP Measures and GAAP to Non-GAAP Reconciliations for a discussion of our use of non-GAAP based financial measures, including tables reconciling GAAP and non-GAAP financial measures appearing herein.
 


ORRSTOWN FINANCIAL SERVICES, INC.        
HISTORICAL TRENDS IN QUARTERLY FINANCIAL DATA (Unaudited)    
(continued)         
(In thousands)June 30,
2024
 March 31,
2024
 December 31,
2023
 September 30,
2023
 June 30,
2023
Noninterest income:         
Service charges$1,283  $1,200  $1,198  $1,260  $1,251 
Interchange income 961   911   952   963   993 
Swap fee income 375   199   588   255   196 
Wealth management income 3,312   3,102   2,945   2,826   2,822 
Mortgage banking activities 369   458   143   (142)  112 
Other income 884   765   704   761   1,786 
Investment securities (losses) gains (12)  (5)  (39)  2   (2)
Total noninterest income$7,172  $6,630  $6,491  $5,925  $7,158 
          
Noninterest expenses:         
Salaries and employee benefits$13,195  $13,752  $12,848  $12,885  $13,054 
Occupancy, furniture and equipment 2,705   2,639   2,534   2,460   2,266 
Data processing 1,237   1,265   1,247   1,248   1,201 
Advertising and bank promotions 774   398   501   332   919 
FDIC insurance 419   441   460   477   519 
Professional services 801   631   702   965   504 
Taxes other than income 49   494   203   387   3 
Intangible asset amortization 215   225   236   228   239 
Merger-related expenses 1,135   672   1,059       
Other operating expenses 2,109   1,952   2,602   1,465   2,044 
Total noninterest expenses$22,639  $22,469  $22,392  $20,447  $20,749 
          
 


ORRSTOWN FINANCIAL SERVICES, INC.        
HISTORICAL TRENDS IN QUARTERLY FINANCIAL DATA (Unaudited)      
(continued)         
(In thousands)June 30,
2024
 March 31,
2024
 December 31,
2023
 September 30,
2023
 June 30,
2023
Balance Sheet at quarter end:         
Cash and cash equivalents$132,509  $182,722  $65,161  $94,939  $76,318 
Restricted investments in bank stocks 11,147   11,453   11,992   12,987   12,602 
Securities available for sale 529,082   514,909   513,519   495,162   508,612 
Loans held for sale, at fair value 1,562   535   5,816   6,448   6,450 
Loans:         
Commercial real estate:         
Owner occupied 371,301   364,280   373,757   376,350   366,439 
Non-owner occupied 710,477   707,871   694,638   630,514   626,140 
Multi-family 151,542   147,773   150,675   143,437   145,257 
Non-owner occupied residential 89,156   91,858   95,040   100,391   105,504 
Commercial and industrial 374,976   365,524   367,085   374,190   379,905 
Acquisition and development:         
1-4 family residential construction 32,439   22,277   24,516   25,642   20,461 
Commercial and land development 129,883   118,010   115,249   153,279   143,177 
Municipal 10,594   10,925   9,812   10,334   10,638 
Total commercial loans 1,870,368   1,828,518   1,830,772   1,814,137   1,797,521 
Residential mortgage:         
First lien 271,153   270,748   266,239   248,335   235,813 
Home equity – term 4,633   4,966   5,078   5,223   5,228 
Home equity – lines of credit 192,736   189,966   186,450   188,736   185,099 
Installment and other loans 8,713   8,875   9,774   10,405   10,756 
Total loans 2,347,603   2,303,073   2,298,313   2,266,836   2,234,417 
Allowance for credit losses (29,864)  (29,165)  (28,702)  (28,278)  (28,383)
Net loans held-for-investment 2,317,739   2,273,908   2,269,611   2,238,558   2,206,034 
Goodwill 18,724   18,724   18,724   18,724   18,724 
Other intangible assets, net 1,974   2,189   2,414   2,650   2,589 
Total assets 3,198,782   3,183,331   3,064,240   3,054,435   3,008,197 
Total deposits 2,702,884   2,695,951   2,558,814   2,546,435   2,522,861 
Borrowings 129,625   127,099   147,285   175,241   152,229 
Subordinated notes 32,128   32,111   32,093   32,076   32,059 
Total shareholders' equity 278,376   271,682   265,056   243,080   245,641 


ORRSTOWN FINANCIAL SERVICES, INC.        
HISTORICAL TRENDS IN QUARTERLY FINANCIAL DATA (Unaudited)      
(continued)         
 June 30,
2024
 March 31,
2024
 December 31,
2023
 September 30,
2023
 June 30,
2023
Capital and credit quality measures(1):         
Total risk-based capital:         
Orrstown Financial Services, Inc 13.3%  13.4%  13.0%  13.0%  13.0%
Orrstown Bank 13.1%  13.1%  12.8%  12.5%  12.5%
Tier 1 risk-based capital:         
Orrstown Financial Services, Inc 11.1%  11.2%  10.8%  10.6%  10.5%
Orrstown Bank 12.0%  11.9%  11.6%  11.4%  11.4%
Tier 1 common equity risk-based capital:         
Orrstown Financial Services, Inc 11.1%  11.2%  10.8%  10.6%  10.5%
Orrstown Bank 12.0%  11.9%  11.6%  11.4%  11.4%
Tier 1 leverage capital:         
Orrstown Financial Services, Inc 8.9%  9.0%  8.9%  8.7%  8.6%
Orrstown Bank 9.5%  9.6%  9.5%  9.3%  9.3%
          
Average equity to average assets 8.50%  8.66%  8.18%  8.18%  8.11%
Allowance for credit losses to total loans 1.27%  1.27%  1.25%  1.25%  1.27%
Total nonaccrual loans to total loans 0.36%  0.56%  1.11%  0.98%  0.94%
Nonperforming assets to total assets 0.26%  0.40%  0.83%  0.73%  0.70%
Allowance for credit losses to nonaccrual loans 357%  226%  112%  127%  135%
          
Other information:         
Net charge-offs (recoveries)$113  $(42) $(6) $241  $380 
Classified loans 48,722   48,997   55,030   33,593   26,347 
Nonperforming and other risk assets:         
Nonaccrual loans 8,363   12,886   25,527   22,324   21,062 
Other real estate owned              
Total nonperforming assets 8,363   12,886   25,527   22,324   21,062 
Financial difficulty modifications still accruing       9       
Loans past due 90 days or more and still accruing 187   99   66   277   539 
Total nonperforming and other risk assets$8,550  $12,985  $25,602  $22,601  $21,601 
(1) Capital ratios are estimated, subject to regulatory filings. The Company elected the three-year phase in option for the day-one impact of ASU 2016-13 for current expected credit losses ("CECL") to regulatory capital. Beginning in 2023, the Company adjusted retained earnings, allowance for credit losses includable in tier 2 capital and the deferred tax assets from temporary differences in risk weighted assets by the permitted percentage of the day-one impact from adopting the new CECL standard.


Appendix A- Supplemental Reporting of Non-GAAP Measures and GAAP to Non-GAAP Reconciliations

Management believes providing certain other “non-GAAP” financial information will assist investors in their understanding of the effect on recent financial results from non-recurring charges.

As a result of acquisitions, the Company has intangible assets consisting of goodwill, core deposit and other intangible assets, which totaled $20.7 million and $21.1 million at June 30, 2024 and December 31, 2023, respectively. In addition, during the three months ended June 30, 2024, March 31, 2024 and December 31, 2023, the Company incurred $1.1 million, $0.7 million and $1.1 million in merger-related expenses, respectively.

Tangible book value per common share and the impact of the merger-related expenses on net income and associated ratios, as used by the Company in this earnings release, are determined by methods other than in accordance with U.S. Generally Accepted Accounting Principles ("GAAP"). While we believe this information is a useful supplement to GAAP based measures presented in this earnings release, readers are cautioned that this non-GAAP disclosure has limitations as an analytical tool, should not be viewed as a substitute for financial measures determined in accordance with GAAP, and should not be considered in isolation or as a substitute for analysis of our results and financial condition as reported under GAAP, nor are such measures necessarily comparable to non-GAAP performance measures that may be presented by other companies. This supplemental presentation should not be construed as an inference that our future results will be unaffected by similar adjustments to be determined in accordance with GAAP.

The following tables present the computation of each non-GAAP based measure:

(dollars and shares in thousands)

Tangible Book Value per Common Share June 30,
2024
 March 31,
2024
 December 31,
2023
 September 30,
2023
 June 30,
2023
Shareholders' equity (most directly comparable GAAP-based measure) $278,376  $271,682  $265,056  $243,080  $245,641 
Less: Goodwill  18,724   18,724   18,724   18,724   18,724 
Other intangible assets  1,974   2,189   2,414   2,650   2,589 
Related tax effect  (415)  (460)  (507)  (557)  (544)
Tangible common equity (non-GAAP) $258,093  $251,229  $244,425  $222,263  $224,872 
           
Common shares outstanding  10,720   10,705   10,612   10,613   10,611 
           
Book value per share (most directly comparable GAAP-based measure) $25.97  $25.38  $24.98  $22.90  $23.15 
Intangible assets per share  1.89   1.91   1.95   1.96   1.96 
Tangible book value per share (non-GAAP) $24.08  $23.47  $23.03  $20.94  $21.19 
           


(dollars and shares in thousands)Three Months Ended Six Months Ended
Adjusted Ratios for Merger-Related ExpensesJune 30,
2024
 March 31,
2024
 December 31,
2023
 June 30,
2023
 June 30,
2024
 June 30,
2023
Net income (A) - most directly comparable GAAP-based measure$7,738  $8,531  $7,643  $9,838  $16,269  $18,994 
Plus: Merger-related expenses (B) 1,135   672   1,059      1,807    
Less: Related tax effect (C) (139)  (1)  (79)     (140)   
Adjusted net income (D=A+B-C) - Non-GAAP$8,734  $9,202  $8,623  $9,838  $17,936  $18,994 
            
Average assets (E)$3,211,124  $3,098,772  $3,037,824  $2,989,415  $3,154,948  $2,961,427 
Return on average assets (= A / E) - most directly comparable GAAP-based measure(1) 0.97%  1.11%  1.00%  1.32%  1.04%  1.29%
Return on average assets, adjusted (= D / E) - Non-GAAP(1) 1.09%  1.19%  1.13%  1.32%  1.14%  1.29%
            
Average equity (F)$272,788  $268,289  $248,442  $242,527  $270,538  $238,233 
Return on average equity (= A / F) - most directly comparable GAAP-based measure(1) 11.41%  12.79%  12.21%  16.27%  12.09%  16.08%
Return on average equity, adjusted (= D / F) - Non-GAAP(1) 12.88%  13.79%  13.77%  16.27%  13.33%  16.08%
            
Weighted average shares - basic (G) - most directly comparable GAAP-based measure 10,393   10,349   10,321   10,336   10,371   10,360 
Basic earnings per share (= A / G) - most directly comparable GAAP-based measure$0.74  $0.82  $0.74  $0.95  $1.57  $1.83 
Basic earnings per share, adjusted (= D / G) - Non-GAAP$0.84  $0.89  $0.84  $0.95  $1.73  $1.83 
            
Weighted average shares - diluted (H) - most directly comparable GAAP-based measure 10,553   10,482   10,419   10,421   10,517   10,458 
Diluted earnings per share (= A / H) - most directly comparable GAAP-based measure$0.73  $0.81  $0.73  $0.94  $1.55  $1.82 
Diluted earnings per share, adjusted (= D / H) - Non-GAAP$0.83  $0.88  $0.83  $0.94  $1.71  $1.82 
            
Noninterest expense (I) - most directly comparable GAAP-based measure$22,639  $22,469  $22,392  $20,749  $45,108  $41,004 
Less: Merger-related expenses (B) (1,135)  (672)  (1,059)     (1,807)   
Adjusted noninterest expense (J = I - B) - Non-GAAP$21,504  $21,797  $21,333  $20,749  $43,301  $41,004 
continued
(1) Annualized           


            
 Three Months Ended Six Months Ended
 June 30,
2024
 March 31,
2024
 December 31,
2023
 June 30,
2023
 June 30,
2024
 June 30,
2023
Net interest income (K)$26,103  $26,881  $26,018  $26,375  $52,984  $52,669 
Noninterest income (L) 7,172   6,630   6,491   7,158   13,802   13,236 
Total operating income (M = K + L)$33,275  $33,511  $32,509  $33,533  $66,786  $65,905 
            
Efficiency ratio (= I / M) - most directly comparable GAAP-based measure 68.0%  67.0%  68.9%  61.9%  67.5%  62.2%
Efficiency ratio, adjusted (= J / M) - Non-GAAP 64.6%  65.0%  65.6%  61.9%  64.8%  62.2%
            
            
            
(1) Annualized           


Appendix B- Investment Portfolio Concentrations

The following table summarizes the credit ratings and collateral associated with the Company's investment security portfolio, excluding equity securities, at June 30, 2024:

(dollars in thousands)

SectorPortfolio Mix Amortized Book Fair Value Credit Enhancement AAA AA A BBB NR Collateral / Guarantee Type
Unsecured ABS1% $3,330 $3,022 26% % % % % 100% Unsecured Consumer Debt
Student Loan ABS1   4,662  4,558 27          100  Seasoned Student Loans
Federal Family Education Loan ABS16   89,830  89,516 10  7  80    13    Federal Family Education Loan(1)
PACE Loan ABS   2,231  1,945 6  100          PACE Loans(2)
Non-Agency CMBS3   14,180  14,185 25          100   
Non-Agency RMBS3   17,195  14,201 16  100          Reverse Mortgages(3)
Municipal - General Obligation18   102,548  93,339   10  83  7       
Municipal - Revenue21   118,856  107,107     82  12    6   
SBA ReRemic(5)   2,662  2,639     100        SBA Guarantee(4)
Small Business Administration1   7,222  7,662     100        SBA Guarantee(4)
Agency MBS32   183,546  173,086     100        Residential Mortgages(4)
U.S. Treasury securities4   20,050  17,713     100        U.S. Government Guarantee(4)
 100% $566,312 $528,973   6% 83% 4% 2% 5%  
                    
(1)97% guaranteed by U.S. government
(2)PACE acronym represents Property Assessed Clean Energy loans
(3)Non-agency reverse mortgages with current structural credit enhancements
(4)Guaranteed by U.S. government or U.S. government agencies
(5)SBA ReRemic acronym represents Re-Securitization of Real Estate Mortgage Investment Conduits
                    
Note: Ratings in table are the lowest of the six rating agencies (Standard & Poor's, Moody's, Fitch, Morningstar, DBRS and Kroll Bond Rating Agency). Standard & Poor's rates U.S. government obligations at AA+.


About the Company

With $3.2 billion in assets, Orrstown Financial Services, Inc. and its wholly-owned subsidiary, Orrstown Bank, provide a wide range of consumer and business financial services in Berks, Cumberland, Dauphin, Franklin, Lancaster, Perry, and York Counties, Pennsylvania and Anne Arundel, Baltimore, Howard, and Washington Counties, Maryland, as well as Baltimore City, Maryland. The Company's lending area also includes adjacent counties in Pennsylvania and Maryland, as well as Loudon County, Virginia and Berkeley, Jefferson and Morgan Counties, West Virginia. Orrstown Bank is an Equal Housing Lender and its deposits are insured up to the legal maximum by the FDIC. Orrstown Financial Services, Inc.’s common stock is traded on Nasdaq (ORRF). On July 1, 2024, the Company closed the merger of equals transaction with Codorus Valley Bancorp, Inc. ("Codorus") with offices in York, Lancaster and Cumberland counties of Pennsylvania, and Baltimore and Harford counties in Maryland. At the time of the merger, Codorus had assets totaling $2.2 billion, including total loans of $1.7 billion, and total deposits of $1.9 billion. For more information about Orrstown Financial Services, Inc. and Orrstown Bank, visit www.orrstown.com.

Cautionary Note Regarding Forward-Looking Statements

This press release contains “forward-looking statements” within the meaning of Section 27A of the Securities Act and Section 21E of the Exchange Act. Forward-looking statements reflect the current views of the Company's management with respect to, among other things, future events and the Company's financial performance. These statements are often, but not always, made through the use of words or phrases such as “may,” “should,” “could,” “predict,” “potential,” “believe,” “will likely result,” “expect,” “continue,” “will,” “anticipate,” “seek,” “estimate,” “intend,” “plan,” “project,” “forecast,” “goal,” “target,” “would” and “outlook,” or the negative variations of those words or other comparable words of a future or forward-looking nature. These forward-looking statements are not historical facts, and are based on current expectations, estimates, predictions or projections about events or the Company's industry, management’s beliefs and certain assumptions made by management, many of which, by their nature, are inherently uncertain and beyond the Company's control. Accordingly, the Company cautions you that any such forward-looking statements are not guarantees of future performance and are subject to risks, assumptions and uncertainties that are difficult to predict. Although the Company believes that the expectations reflected in these forward-looking statements are reasonable as of the date made, actual results may prove to be materially different from the results expressed or implied by the forward-looking statements and there can be no assurances that the Company will achieve the desired level of new business development and new loans, growth in the balance sheet and fee-based revenue lines of business, successful merger and acquisition activity and cost savings initiatives and continued reductions in risk assets or mitigation of losses in the future. Factors which could cause the actual results of the Company's operations to differ materially from expectations include, but are not limited to: general economic conditions (including inflation and concerns about liquidity) on a national basis or in the local markets in which the Company operates; ineffectiveness of the Company's strategic growth plan due to changes in current or future market conditions; changes in interest rates; the diversion of management's attention from ongoing business operations and opportunities; the effects of competition and how it may impact our community banking model, including industry consolidation and development of competing financial products and services; changes in consumer behavior due to changing political, business and economic conditions, or legislative or regulatory initiatives; changes in laws and regulations; changes in credit quality; inability to raise capital, if necessary, under favorable conditions; volatility in the securities markets; the demand for our products and services; deteriorating economic conditions; geopolitical tensions; operational risks including, but not limited to, cybersecurity incidents, fraud, natural disasters and future pandemics; expenses associated with litigation and legal proceedings; the possibility that the anticipated benefits of the merger with Codorus (the “Merger”) are not realized when expected or at all; the possibility that the Merger may be more expensive to complete than anticipated; the possibility that revenues following the Merger may be lower than expected; potential adverse reactions or changes to business or employee relationships, including those resulting from the completion of the Merger; the ability to complete the integration of the two companies successfully; the dilution caused by the Company’s issuance of additional shares of its capital stock in connection with the Merger; and other risks and uncertainties, including those detailed in our Annual Report on Form 10-K for the year ended December 31, 2023 under the sections titled “Risk Factors” and “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and in subsequent filings made with the Securities and Exchange Commission.

The foregoing list of factors is not exhaustive. If one or more events related to these or other risks or uncertainties materializes, or if the Company's underlying assumptions prove to be incorrect, actual results may differ materially from what the Company anticipates. Accordingly, you should not place undue reliance on any such forward-looking statements. Any forward-looking statement speaks only as of the date on which it is made, and the Company disclaims any obligation to publicly update or review any forward-looking statement, whether as a result of new information, future developments or otherwise. New risks and uncertainties arise from time to time, and it is not possible for the Company to predict those events or how they may affect it. In addition, the Company cannot assess the impact of each factor on its business or the extent to which any factor, or combination of factors, may cause actual results to differ materially from those contained in any forward-looking statements. All forward-looking statements, expressed or implied, included in this press release are expressly qualified in their entirety by this cautionary statement. This cautionary statement should also be considered in connection with any subsequent written or oral forward-looking statements that the Company or persons acting on the Company's behalf may issue.

The review period for subsequent events extends up to and includes the filing date of a public company’s financial statements, when filed with the Securities and Exchange Commission. Accordingly, the consolidated financial information presented in this announcement is subject to change. Annualized, pro forma, projected and estimated numbers in this document are used for illustrative purposes only and are not forecasts and may not reflect actual results.


FAQ

What were Orrstown Financial Services' earnings for Q2 2024?

Orrstown reported a net income of $7.7 million and diluted EPS of $0.73 for Q2 2024.

What is the new dividend declared by Orrstown Financial Services?

Orrstown declared an increased dividend of $0.23 per share, payable on August 15, 2024.

How did Orrstown Financial Services' net interest margin perform in Q2 2024?

The net interest margin fell to 3.54% from 3.77% in Q1 2024.

What was the impact of merger-related expenses on Orrstown's Q2 2024 earnings?

Excluding $1 million in merger-related expenses, net income and diluted EPS were $8.7 million and $0.83, respectively.

How did nonaccrual loans change for Orrstown in Q2 2024?

Nonaccrual loans decreased to $8.4 million from $12.9 million at the end of Q1 2024.

Orrstown Financial Services Inc

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